Pro-democracy protesters in Hong Kong on Tuesday. ‘Hong Kong has lost its role as the gateway to China.’ Photograph: Chris McGrath/Getty Images

The upheaval sweeping Hong Kong is more complicated than on the surface it might appear. Protests have erupted over direct elections to be held in three years’ time; democracy activists claim that China’s plans will allow it to screen out the candidates it doesn’t want.

It should be remembered, however, that for 155 years until its handover to China in 1997, Hong Kong was a British colony, forcibly taken from China at the end of the first opium war. All its 28 subsequent governors were appointed by the British government. Although Hong Kong came, over time, to enjoy the rule of law and the right to protest, under the British it never enjoyed even a semblance of democracy. It was ruled from 6,000 miles away in London. The idea of any kind of democracy was first introduced by the Chinese government. In 1990 the latter adopted the Basic Law, which included the commitment that in 2017 the territory’s chief executive would be elected by universal suffrage; it also spelt out that the nomination of candidates would be a matter for a nominating committee.

This proposal should be seen in the context of what was a highly innovative – and, to westerners, completely unfamiliar – constitutional approach by the Chinese. The idea of “one country, two systems” under which Hong Kong would maintain its distinctive legal and political system for 50 years. Hong Kong would, in these respects, remain singularly different from the rest of China, while at the same time being subject to Chinese sovereignty. In contrast, the western view has always embraced the principle of “one country, one system” – as, for example, in German unification. But China is more a civilisation-state than a nation-state: historically it would have been impossible to hold together such a vast country without allowing much greater flexibility. Its thinking – “one civilisation, many systems” – was shaped by its very different history.

In the 17 years since the handover, China has, whatever the gainsayers might suggest, overwhelmingly honoured its commitment to the principle of one country, two systems. The legal system remains based on English law, the rule of law prevails, and the right to demonstrate, as we have seen so vividly in recent days, is still very much intact. The Chinese meant what they offered. Indeed, it can reasonably be argued that they went to extremes in their desire to be unobtrusive: sotto voce might be an apt way of describing China’s approach to Hong Kong. At the time of the handover, and in the three years I lived in Hong Kong from 1998, it was difficult to identify any visible signs of Chinese rule: I recall seeing just one Chinese flag.

Notwithstanding this, Hong Kong – and its relationship with China – was in fact changing rapidly. Herein lies a fundamental reason for the present unrest: the growing sense of dislocation among a section of Hong Kong’s population. During the 20 years or so prior to the handover, the territory enjoyed its golden era – not because of the British but because of the Chinese. In 1978 Deng Xiaoping embarked on his reform programme, and China began to grow rapidly. It was still, however, a relatively closed society. Hong Kong was the beneficiary – it became the entry point to China, and as a result attracted scores of multinational companies and banks that wanted to gain access to the Chinese market. Hong Kong got rich because of China. It also fed an attitude of hubris and arrogance. The Hong Kong Chinese came to enjoy a much higher standard of living than the mainlanders. They looked down on the latter as poor, ignorant and uncouth peasants, as greatly their inferior. They preferred – up to a point – to identify with westerners rather than mainlanders, not because of democracy (the British had never allowed them any) but primarily because of money and the status that went with it.

Much has changed since 1997. The Chinese economy has grown many times, the standard of living of the Chinese likewise. If you want to access the Chinese market nowadays, why move to Hong Kong when you can go straight to Beijing, Shanghai, Guangzhou, Chengdu and a host of other major cities? Hong Kong has lost its role as the gateway to China. Where previously Hong Kong was China’s unrivalled financial centre, now it is increasingly dwarfed by Shanghai. Until recently, Hong Kong was by far China’s largest port: now it has been surpassed by Shanghai and Shenzhen, and Guangzhou will shortly overtake it.

Two decades ago westerners comprised the bulk of Hong Kong’s tourists, today mainlanders account for the overwhelming majority, many of them rather more wealthy than most Hong Kong Chinese. Likewise, an increasing number of mainlanders have moved to the territory – which is a growing source of resentment. If China needed Hong Kong in an earlier period, this is no longer nearly as true as it was. On the contrary, without China, Hong Kong would be in deep trouble.

Understandably, many Hong Kong Chinese are struggling to come to terms with these new realities. They are experiencing a crisis of identity and a sense of displacement. They know their future is inextricably bound up with China but that is very different from embracing the fact. Yet there is no alternative: China is the future of Hong Kong.

All these issues, in a most complex way, are being played out in the present arguments over universal suffrage. Hong Kong is divided. About half the population support China’s proposals on universal suffrage, either because they think they are a step forward or because they take the pragmatic view that they will happen anyway. The other half is opposed. A relatively small minority of these have never really accepted Chinese sovereignty. Anson Chan, the former head of the civil service under Chris Patten, and Jimmy Lai, a prominent businessman, fall into this category, and so do some of the Democrats. Then there is a much larger group, among them many students, who oppose Beijing’s plans for more idealistic reasons.

One scenario can be immediately discounted. China will not accept the election of a chief executive hostile to Chinese rule. If the present unrest continues, then a conceivable backstop might be to continue indefinitely with the status quo, which, from the point of view of democratic change, both in Hong Kong and China, would be a retrograde step. More likely is that the Chinese government will persist with its proposals, perhaps with minor concessions, and anticipate that the opposition will slowly abate. This remains the most likely scenario.

An underlying weakness of Chinese rule has nevertheless been revealed by these events. One of the most striking features of Hong Kong remains the relative absence of a mainland political presence. The Chinese have persisted with what can best be described as a hands-off approach. Their relationship to the administration is either indirect or behind the scenes. Strange as it may seem, the Chinese are not involved in the cut and thrust of political argument. They will need to find more effective ways of making their views clear and arguing their case – not in Beijing but in Hong Kong.